Trade Fight between US-China

Trade Fight between US-China
News: During her recent visit to China, Treasury Secretary Janet Yellen highlighted that the burgeoning production of electric cars and other green technologies in China has become a focal point in a new trade dispute between the U.S. and China.
Background:
• According to the International Energy Agency (IEA), after more than a decade of subsidising its automakers, China has built a substantial car industry that accounts for 60% of global electric vehicle (EV) sales.
• Chinese companies are producing as many as 10 million more EVs annually than they can sell domestically, driving them to sell more cars overseas.
• Similar dynamics exist in other industries, such as solar panels, batteries, and more traditional areas such as steel.
• As the Chinese are building up a lot of capacity in many industries, they are going to be looking for markets outside the country, if domestic demand does not pick up.
• For example, leading Chinese automaker BYD had recently introduced an electric SUV at the “astonishingly low” price of $14,000, posing an “existential threat” to U.S. carmakers.
• The U.S. currently has 25% tariffs on cars from China that has largely blocked vehicles from that country, but Mexico has a free trade agreement with the US.
• The new trade fight is quite similar to the previous one. What’s new is that the concerns around overcapacity in some cutting-edge sectors have become acute.

Concerns Raised by the US

Biden administrations legislation supporting clean energy and semiconductor producers.

High U.S. support for consumption during COVID-19 pandemic.

Concerns Raised by China

Allegations that Bidens subsidies for electric car purchases violate trade rules (filed complaint with WTO).

Chinas 2019 industrial subsidies were double the size of U.S. support (in dollar terms).

China subsidizes production without significant increase in domestic consumption.